Budget Estimates for 1938-39
Department of Finance
BUDGET Estimates for the General Account of the 1938-39 fiscal year were approved by the Cabinet on November 30, 1937. Those for the Special Accounts were formulated at a Cabinet meeting on January 11, 1938. Both have been submitted to the 73rd session of the Imperial Diet. Before presenting a summary of the new budget, the circumstances in which the estimates for 1938-39 were formulated should be understood.
Policy on Compiling the New Budget
On June 29, 1937, prior to the outbreak of the North China Incident, the Cabinet established a policy on compiling the budget for the 1938-39 fiscal year, the major points of which were :
1. In view of the prevailing situation, demands for appropriations for expenditures covering new undertakings by each Department shall be limited to those which are truly urgent and necessary ; the substance of such demands shall be examined thoroughly in order to avoid unnecessary expenses.
2. While endeavouring to effect thrift and retrenchment as far as possible in expenditures for undertakings already decided upon, each Department shall direct efforts to increase annual revenue.
3. With respect to expenditures for undertakings previously determined, even in cases where advances in commodity prices occur, each Department shall endeavour to administer its finances in such a way as to avoid increases in appropriations.
4. Undertakings such as construction and repair work requiring increase in demands for goods shall be avoided as far as possible.
5. Particular attention shall be directed to economy in travelling expenses abroad, purchases of goods from foreign countries, and other similar expenses which constitute cause for increased international payments.
6. An attempt shall be made to adjust the Special Accounts with the General Account with reference to their shares in State expenses since the former are considered to have greater reserves in comparison with those in the latter.
7. When making demands for appropriations, each Department shall be required to produce estimates not only for the 1938-39 fiscal year but also those based on plans for subsequent years.
8. Demands for appropriations by each Department shall be supplemented by reports on requirements of goods involved, giving estimates as accurate as possible.
Although the above policy was determined before the occurrence of the China Affair, the Government intended to direct its efforts to replenishment of national defence facilities while attempting to stabilize the national livelihood. Under those circumstances, the Government was seeking to do its best to expand the productive capacity of the nation and to augment importing power with a view to supplying abundantly those materials essential for the replenishment of national defence equipment. This intention is clearly reflected in each of the above points in the policy on formulation of the budget.
However, the North China Incident broke out in July, and subsequently, in view of the obdurate attitude on the part of China, the Imperial Government was forced to resort to positive measures against the Chinese Army and to cause prompt reflection on the part of the Nanking Government. This fact exerted substantial influence on the previously formulated budgetary policy : the basic policy regarding the budget for the 1938-39 fiscal year was then formulated with the China Affair as the pivotal factor. At the Cabinet meeting held on August 24th, the Government decided to add the following principles to the former policy, preparatory to meeting requirements for funds and goods arising in connection with the affair.
1. With respect to demands for expenditures for new undertakings other than those which are urgent and unavoidable in connection with the China Affair, appropriations shall not be made.
2. The greatest possible thrift and retrenchment shall be observed in the expenditures for undertakings already decided upon excepting those urgently required for national defence.
While the policy in compiling the budget for the 1938-39 fiscal year was being strongly influenced by the China Affair, the operation of the budget for the 1937-38 fiscal year was receiving important modifications. The latter inevitably was expanded. On July 17th, ¥10,198,000 was disbursed from the Second Reserve Fund of the National Treasury to meet expenses of the punitive expeditionary forces by the War Department. At the 71st session of the Imperial Diet which convened at the end of July, appropriations
of ¥512,152,000 were approved. Again, at the 72nd session of the Diet meeting in September, the Special Account for Emergency Military Expenditures was created. It was felt necessary to separate the expenditures for military operations from the General Account so that they could be treated in a special manner, dealing with the entire period in which they are expended—from the beginning to the termination of the China Affair—as a single fiscal term. Under this Special Account, appropriations of ¥2,022,671,000 were granted for Army and Navy expenses (inclusive of reserves). Additionally, expenses totalling ¥9,155,000 connected with the North China Incident were provided from the General Account for the Department of Foreign Affairs.
These military expenditures alone caused an expansion of approximately ¥ 2,500,000,000 in the 1937-38 budget. Hence the Government, in a Cabinet meeting on October 19th, made the necessary decision of carrying out thrift and retrenchment so far as possible in the operation of the 1937-38 budget. This decision, which formed the basis for the policy on compiling the budget for the 1938-39 fiscal year, may be summarized as follows :
1. Through the General Account and the Special Account, expenditures shall be reduced by ¥73,237,000, and deferred by ¥108,070,000 (inclusive of a surplus to be carried forward to the next fiscal year), making a total of ¥181,307,000.
2. Expenses incidental to the increase in the number of officials in Government offices, the official organization of which has not as yet been authorized, and travelling expenses abroad shall be minimized as far as possible, although the amount to be economized has not been fixed.
3. Hereafter, each Government Department in execution of the 1937-38 budget shall attempt to economize expenditures and shall endeavour to save additional sums beyond the fixed amount to be economized.
Budget Estimates for the 1938-39 Fiscal Year
With a background of all the above-mentioned policies, the estimates for the 1938-39 fiscal year were drawn up. A substantial increase is anticipated in receipts from taxes and other sources in view of the favourable conditions prevalent in the economic world. However, the revenue accounts still show a deficit which is to be met with funds from public loan issues.
1938-39 Budget Estimates for General Account
(In 1,000 yen)
| Revenue | Expenditures | |
|---|---|---|
| Ordinary | 2,023,028 | 1,640,536 |
| Extraordinary | 844,768 | 1,227,260 |
| (indented) Normal revenue | 150,604 | |
| (indented) Receipts from the issue of public loans | 694,163 | |
| Total | 2,867,796 | 2,867,796 |
The following figures from the budget estimates for the fiscal years 1937-38 and 1938-39 are given for purposes of comparison. The total amount of the 1937-38 budget is ¥ 3,451,895,000 inclusive of the supplementary budget, but this figure includes a sum of ¥ 507,208,000 which has been separated from the General Account and segregated into the Special Account for Emergency Military Expenditures. Therefore, adjusted budget figures, exclusive of the latter sum, are given in the following table :
Comparison of 1938-39 Budget Estimates and Adjusted Budget for the Previous Fiscal Year
(In 1,000 yen)
| Expenditures | 1938-39 Budget | Adjusted Budget for 1937-38 | Increase or decrease |
|---|---|---|---|
| Ordinary | 1,640,536 | 1,503,284 | 137,252 |
| Extraordinary | 1,227,260 | 1,441,402 | (−)214,142 |
| Total | 2,867,796 | 2,944,686 | (−) 76,890 |
In the following table, figures for the 1938-39 expenditures are given, classified by Government Departments :
1938-39 Expenditures by Departments
(In 1,000 yen)
| Departments | Ordinary | Extraordinary | Total |
|---|---|---|---|
| Imperial Household | 4,500 | — | 4,500 |
| Foreign Affairs | 18,577 | 10,481 | 29,059 |
| Home | 44,239 | 192,367 | 236,606 |
| Finance | 637,592 | 52,846 | 690,438 |
| Army | 165,783 | 398,810 | 564,594 |
| Navy | 293,382 | 383,976 | 677,358 |
| Justice | 40,439 | 2,778 | 43,217 |
| Education | 133,377 | 10,436 | 143,813 |
| Agriculture and Forestry | 35,437 | 72,569 | 108,007 |
| Commerce and Industry | 7,273 | 36,643 | 43,917 |
| Communications | 193,371 | 22,023 | 215,394 |
| Overseas | 2,413 | 22,850 | 25,264 |
| Welfare | 64,148 | 21,476 | 85,625 |
| Total | 1,640,536 | 1,227,260 | 2,867,796 |
In explaining the foregoing figures for the annual expenditures, it must be stated in the first place that the previously established plans for the replenishment of national defence facilities are to be carried out as scheduled, and that expenditures for new undertakings of an urgent nature are duly provided for. A reduction of ¥110,029,000 in the expenditures for previously determined undertakings by the War and Navy Departments is explained by the fact that expenditures for the military forces on the front and operation of naval craft are being disbursed from the Special Account for Emergency Military Expenditures.
With respect to expenditures covering new undertakings, appropriations have been made only for those which are considered truly urgent and essential, in view of the present emergency. Among the new items for which appropriations have been made, the outstanding are the funds for the relief of soldiers' families which increased by ¥40,000,000 and the expenditures for institutions for the protection of soldiers which amount to ¥10,000,000. Furthermore, appropriations were made for several institutions set up outside the Army and the Navy, for the realization of the purposes of the present affair. They include expenses for National Spiritual Mobilization and those for the improvement of the quality of horses offered for requisition. As expenditures necessary for the expansion of productive capacity, appropriations allocated for the training of skilled labourers also reach considerable amounts. Sizable appropriations were also made to cover expenses for survey and exploitation of petroleum resources within the country and abroad, experiments in and industrialization of the manufacture of artificial petroleum and for the establishment of new plants for the manufacture of alcohol, as the importance and necessity of self-sufficiency in liquid fuels has been keenly felt in Japan under the current situation. Due recognition has also been given to appropriations for expenditures regarding air defence and civilian aviation.
In addition, considerable appropriations have been made for the execution of measures for the promotion of exports in view of the present status of Japan's international trade balance. As to expenses for institutions concerned with the welfare of rural communities, allocations were made for the establishment and maintenance of land-owning farmers, for special assistance to plans for the economic recovery of agrarian villages, for engineering undertakings in agricultural districts and for various other farm relief undertakings. These appropriations have been made on a continuative basis. Appropriations were also made for several new items, such as expenses for the development of agricultural resources, for the enforcement of
laws concerning farm land, for institutions assuring liberal supply of important fertilizers, for the improvement in financing of fishing villages and for the acceleration of self-sufficiency in fodder. Moreover, the First Reserve Fund of the National Treasury has been increased by ¥12,000,000 and the Second by ¥25,000,000.
The Government has thus made earnest endeavours to appropriate adequately for the expenses which are considered necessary in connection with the present Affair, while simultaneously, it has attempted to economize expenditures in general in line with the following principles :
1. To avoid appropriations for expenses for such undertakings as construction, repairing and engineering works, which are liable to cause increases in consumption of goods, in order to assure adequate supply of materials for military operations.
2. To direct every possible effort to reducing travelling expenses abroad and other such expenses which cause increases in international payments, in view of the prevailing circumstances.
In this manner, the Government has achieved an appreciable saving of ¥60,336,000 and a deferment of ¥80,731,000, totalling ¥141,068,000 in the expenditures previously determined for undertakings.
The following table gives figures for the estimated revenues in comparison with those for the previous fiscal year :
1938-39 Revenue Estimates Compared with Adjusted Estimates for the Preceding Fiscal Year
(In 1,000 yen)
| Sources | 1938-39 Estimates | Adjusted Estimates for previous fiscal year | Increase / Decrease |
|---|---|---|---|
| Ordinary : | |||
| Taxes | 1,423,424 | 1,250,722 | 172,701 |
| Stamp receipts | 99,592 | 86,743 | 12,848 |
| Receipts from Government enterprises and property | 341,371 | 331,176 | 10,194 |
| Contributed from the Special Account of Communications Services | 81,500 | 81,000 | 500 |
| Contributed from the Bank of Japan | 15,066 | 13,087 | 1,978 |
| Miscellaneous receipts | 55,319 | 57,033 | (−) 1,714 |
(Table continued from p. 20; the column headings are repeated at the head of p. 21.)
| Sources | 1938-39 Estimates | Adjusted Estimates for previous fiscal year | Increase / Decrease |
|---|---|---|---|
| Contributed from Special Account of Funds for educational improvement and agrarian village development | 6,755 | 7,495 | (−) 740 |
| Total Ordinary revenues | 2,023,028 | 1,827,259 | 195,769 |
| Extraordinary : | |||
| Proceedings of sales of Government properties | 6,754 | 6,518 | 236 |
| Miscellaneous receipts | 17,821 | 45,979 | (−) 28,157 |
| Receipts from Temporary Profit Tax | 78,836 | 58,522 | 20,314 |
| Transferred from Special Accounts | 6,700 | 67,890 | (−) 61,190 |
| Other revenues | 40,491 | 54,517 | (−) 14,026 |
| Total | 150,604 | 233,427 | (−) 82,823 |
| Receipts from the issue of public loans | 694,163 | 827,395 | (−) 133,231 |
| Surplus brought forward from the previous fiscal year | — | 20,649 | (−) 20,649 |
| Total extraordinary revenues | 844,768 | 1,081,472 | (−) 236,704 |
| Total revenues | 2,867,796 | 2,908,731 | (−) 40,934 |
A plan for general reform in central and local taxation systems was dropped for the time being, but partial revisions have been effected in the income tax, business profit tax, capital interest tax, succession tax, temporary profit tax and registration tax, wherein alterations had been pending or where revisions were considered appropriate. However, in effecting the present tax revisions the Government carefully refrained from touching fundamental questions regarding the existing taxation system, and furthermore has not held the increasing or decreasing of tax receipts as its principal objective.
Among the items of receipts, reductions in revenue are expected from such taxes as the land tax, textile consumption taxes and import duties, but increases are anticipated in receipts from the income tax, business profit tax, brewery tax and many others, in view of favourable developments in economic circles.
While a decrease is noticeable in the amount transferred from Special Accounts to the General Account, this change is explained by the fact that contributions from the special accounts of the Government-General of Chosen, the Government-General of Taiwan, the Government of Karafuto, Imperial railways and communication services, which are under the General Account for the present financial year, have been transferred to the Special Account for Emergency Military Expenditures for the 1938-39 fiscal year.
The public loan programme for the fiscal year 1938-39 involves the amount of ¥ 694,163,000 which, in recapitulation, is as follows : Earthquake Reconstruction bonds, ¥3,804,000 ; highway bonds, ¥7,946,000 ; Manchurian Incident bonds, ¥124,617,000 ; bonds covering deficits in annual revenues, ¥557,795,000.
In addition to the above, the Government is to issue bonds amounting to ¥ 166,500,000 for Special Accounts which brings the total bond issues for both General and Special Accounts to ¥ 860,663,000. This represents a reduction of ¥ 109,731,000 in comparison with the 1937-38 bond issues, exclusive of those covering the Extraordinary Military Expenditures.
While the explanations dealt with here apply chiefly to the General Account, there are 39 Special Accounts established to meet particular necessities of finance, including the Special Account for Emergency Military Expenditures. Regarding the budget for the Special Account of Emergency Military Expenditures, a supplementary budget for the expenditures for military operations will be introduced to the Diet.